House Budget Slashes EPA Funding, Halts Regulations on Cement NESHAP, Greenhouse Gases and Ethanol Content

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--As a statement of political principle, it was clear, hard-hitting and far-reaching: The U.S. House of Representatives passed a federal budget bill over the weekend that reduced U.S. government spending by $61 billion for the current fiscal year, which ends September 30, 2011.

After passing the budget bill, Congress immediately recessed for a week. Most observers called the House bill "dead on arrival," because the Democrat-led Senate was strongly opposed to budget cuts of that scale. When Congress returns to work on February 28, it will have one week to find a way to keep the federal government operating past March 4, which is when it is scheduled to run out of funding for the current fiscal year. Republicans are opposed to increasing the federal debt ceiling, which would allow the Treasury to raise cash by issuing more bonds so that the government could continue to operate.

The $61 billion in budget cuts represents a pro-rated portion of the $100 billion in budget cuts that Tea Party-backed congressional candidates vowed to trim from the federal budget during last year's election campaigns. The 2011 fiscal year began October 1, so the $61 billion in budget cuts equals about five-twelfths of $100 billion, or $61 billion. The budget approved in the bill was $1.2 trillion.

Votes were cast almost entirely along party lines: No House Democrat voted for the bill. Three House Republicans joined with Democrats in opposing the bill. Predictably, Republicans said they were fulfilling their campaign promises and the wishes of their constituents, while Democrats highlighted how the cuts would affect at-risk populations like the poor, elderly, sick and others who depend on the federal government. Republican leaders appearing on the Sunday talk shows said they were not trying to force a government shutdown, which last happened in 1995 and 1996 when the Republican-led House and the Clinton administration could not come to agreement about funding the government.

As the dust was settling in Washington, federal agencies and industry groups were scrutinizing the 359-page budget bill, H.R. 1, which included hundreds of separate floor amendments over a four-day period last week. The bill would impact, directly or indirectly, numerous government actions that would affect industrial and energy companies.

The House budget bill would cut about $3 billion from the U.S. Environmental Protection Agency's (EPA) operating budget, about 29% of the agency's overall budget. Other agencies would suffer less sizable cuts, ranging from 3% for Homeland Security, 5% for the Internal Revenue Service, and 10% for the Food & Drug Administration. Congress voted to cut its own budget 4%.

The bill would prevent the EPA from implementing, administering or enforcing the National Emission Standards for Hazardous Air Pollutants (NESHAP) on the Portland cement industry. The draft rule had been sharply criticized by cement-makers because it would require them to install expensive pollution-control equipment to reduce emissions of mercury, total hydrocarbons, hydrochloric acid and particulate matter. The increased capital and operating costs of these measures would cause some cement-makers to close their doors, cement-makers said.

The Portland Cement Association (PCA) (Skokie, Illinois) applauded the Houses move's to freeze EPA action on the NESHAP rule. In a press release, the group claimed that its industry was "among the most highly regulated enterprises in the country," and that it is currently facing "an avalanche" of seven separate rules from the EPA. The House budget bill "will allow the industry to continue its dialogue with the EPA with the goal of crafting regulations appropriate for the industry," PCA said.

"The cement industry is committed to working with environmental regulators to ensure that regulations are based on science and preserve state-of-the-art manufacturing capacity," Brian McCarthy, president and CEO of the Portland Cement Association (PCA) said in a statement. The budget bill rider covering the cement NESHAP rule is "crucial to rational and feasible emission standards," he said.

PCA said that the proposed NESHAP rule would shut down 18 plants, which will affect 11% of annual Portland cement production. The group estimated the cost of complying with the draft NESHAP rule was $3.4 billion, about 50% of the industry's total annual revenue. For more information, see August 12, 2010, article - EPA Rule on Mercury Emissions May Close up to 27% of U.S. Cement Plants.

H.R. 1 also prohibited the EPA from taking any action to regulate greenhouse gas emissions from stationary sources such as power plants, oil refineries and other industrial businesses. Section 1746 of H.R. 1 proclaimed: "None of the funds made available to the Environmental Protection Agency by this division or any other Act may be expended for purposes of enforcing or promulgating any regulation (other than with respect to section 202 of the Clean Air Act) or order, taking action relating to, or denying approval of state implementation plans or permits because of the emissions of greenhouse gases due to concerns regarding possible climate change."

Less clear was H.R. 1's impact on an ongoing draft regulation under the Clean Water Act, specifically section 316(b), which affects cooling water structures for power plants and industrial power generation. The agency estimates that the regulations would affect about 1,200 power plants and manufacturing plants. The EPA estimated the costs of various compliance approaches ranged from $389 million to $440 million (in 2002 dollars) for Phase 2 rules, and between $1 billion to $3.5 billion for Phase 3 rules.

Section 316(b) of the CWA requires the EPA to ensure that the location, design, construction and capacity of cooling water intake structures (CWIS) reflect the best technology available to minimize adverse environmental impacts, particularly on aquatic organisms that could be killed or injured as a result of the cooling water intake systems used by generators and manufacturers. The EPA CWA section 316(b) regulation would apply to existing steam electric and manufacturing facilities, the EPA said in a Federal Register notice published January 21, 2011.

The EPA noted that Executive Order 12866 requires it to estimate the potential benefits and costs to society of proposed changes to significant rules. To assess the importance of the ecological gains from the CWA section 316(b) regulation, EPA asked the Office of Management and Budget for approval to conduct a survey of households for their willingness to pay for changes related to the reduction of fish losses at cooling water intake systems at power plants and industrial manufacturers.

In a 2009 decision, the U.S. Supreme Court ruled that the EPA may consider cost-benefit analysis in its CWA decision-making. But the court did not require the agency to consider costs and benefits in its CWA decisions.

EPA has been drafting the CWA 316(b) regulation, which is required to be issued by March 14, 2011. While declining to say whether that proposed regulation would be halted by H.R. 1, an EPA official, speaking on background, told Industrial Info that "The Administrator must sign the proposed [316(b)] rule by March 14, 2011 and must take final action by July 27, 2012."

H.R. 1 also would block federal funding for the EPA to require an increase in the percentage of ethanol in gasoline. Some blends of gasoline currently contain up to 10% ethanol, and the EPA wants to increase this to 15%.

EPA's plan has been opposed by the National Petrochemical & Refiners Association (NPRA) (Washington, D.C.). After the amendment that stopped EPA's action on ethanol, Charles T. Drevna, president of NPRA, said "Every American who owns a car, light-duty truck, motorcycle, snowmobile or outdoor power equipment will benefit by the House vote that has the effect of blocking the sale of gasoline containing 15% ethanol, known as E15. EPA's approval of the sale of E15 for late-model cars and light-duty trucks was unwise and premature, because thorough and objective scientific testing to establish whether E15 will damage gasoline-powered engines has not been completed." Increased use of E-15 could lead "to misfueling that could cost Americans millions of dollars in engine repair bills."

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